COMMISSIONER OF INTERNAL REVENUE, PETITIONER V. JESSE C. BOLLINGER,
JR., ET AL.

   No. 86-1672

   In the Supreme Court of the United States

   October Term, 1986

   Petition for A Writ of Certiorari to the United States Court of
Appeals for the Sixth Circuit

   The Solicitor General, on behalf of the Commissioner of Internal
Revenue, petitions for a writ of certiorari to review the judgment of
the United States Court of Appeals for the Sixth Circuit in this case.

                       PARTIES TO THE PROCEEDING

   In addition to the parties named in the caption, Edward H. Peter,
Jr., Mary H. Peter, Paul W. Hensley, Mary N. Hensley, Suz-Anne C.
Bollinger, and Jacqueline Bollinger were also petitioners in the Tax
Court and are respondents here.

            TABLE OF CONTENTS
   Question presented
   Parties to the proceeding
   Opinions below
   Jurisdiction
   Statement
   Reasons for granting the petition
   Conclusion

                            OPINIONS BELOW

   The opinion of the court of appeals (App., infra, 1a-11a) is
reported at 807 F.2d 65.  The opinion of the Tax Court (App., infra,
14a-34a) is unofficially reported at 48 T.C.M. (CCH) 1443.

                             JURISDICTION

   The judgment of the court of appeals (App., infra, 12a-13a) was
entered on December 2, 1986.  On February 19, 1987, Justice O'Connor
extended the time for filing a petition for a writ of certiorari to
and including April 16, 1987.  The jurisdiction of this Court is
invoked under 28 U.S.C. 1254(1).

                          QUESTION PRESENTED

   Whether a corporation formed by the controlling partners of a real
estate partnership to hold title to property, and to obtain financing
that the partnership itself could not obtain, can be disregarded for
federal income tax purposes on the theory that it is merely an "agent"
of the partnership.

                               STATEMENT

   1.  Respondent Jesse C. Bollinger, Jr., was a real estate
developer.  Individually and in partnership with others, he
constructed eight apartment complexes in Kentucky.  /1/ The other
respondents were partners in some of those ventures.  Construction
financing was not available to the partnerships /2/ directly because
the market interest rate exceeded the maximum rate that could be
charged to noncorporate borrowers under Kentucky's usury law.  The
usury restriction, however, did not apply to corporate borrowers.  To
avoid the usury problem, a pair of corporations were used to hold
title to the properties and to borrow the funds for development.
Bollinger formed a Kentucky corporation named Creekside, Inc., of
which he was the sole stockholder, to act as the borrower and
title-holder for all of the ventures except one.  Cloisters, Inc., a
Kentucky corporation in which Bollinger had a 50% stock interest,
acted as the borrower and title-holder for that other venture.  App.,
infra, 2a-3a.

   Each partnership entered into a side agreement with the corporation
to which title had been transferred.  These agreements provided that
the corporation would hold title to the property as agent of the
partnership for the sole purpose of securing financing.  No provision
was made in any of the agreements for payment of a fee to the
corporation.  Each partnership, however, agreed to indemnify the
corporation for any liabilities arising in the course of its duties.
In each instance, the corporation executed the loan documents, and the
partners personally guaranteed the loans.  App., infra, 4a-5a, 20a
n.4, 31a-32a.

   For the tax years at issue (ranging variously from 1969 to 1977),
each partnership reported on its partnership tax returns the expenses
incurred and receipts generated in constructing and operating its
respective apartment complex.  Respondents in turn claimed their
distributive shares of those expenses as loss deductions on their
individual tax returns.  On audit, the Commissioner disallowed those
deductions, pointing out that the expenses were incurred by the
corporations that borrowed the money and held title to the properties,
not by the partnerships.  The Commissioner therefore determined that
the expenses were not deductible by respondents (App., infra, 5a).

   2. Respondents sought redetermination of the deficiencies in the
Tax Court.  Relying on an inference from this Court's decision in
National Carbide Corp. v. Commissioner, 336 U.S. 422 (1949), the Tax
Court held that the corporations formed and utilized to obtain
financing were the mere "agents" of the partnerships that they served.
 The court therefore concluded that the corporations could be
disregarded for tax purposes and that the partnerships were the proper
entities to report the deductions generated by the construction and
operation of the apartment complexes.  In so holding, the Tax Court
relied on its prior decisions in Roccaforte v. Commissioner, 77 T.C.
263 (1981), rev'd, 708 F.2d 986 (5th Cir. 1983), and Ourisman v.
Commissioner, 82 T.C. 171 (1984), rev'd, 760 F.2d 541 (4th Cir. 1985).

   3. The court of appeals affirmed (App., infra, 1a-11a).  It
expressly "decline(d) to follow the Fourth Circuit's view, as
expressed in Ourisman" (id. at 11a), which requires the demonstration
of an arm's-length agency arrangement in order for a
corporate-shareholder relationship to be recognized as a true
corporate agency under National Carbide (id. at 9a).  Rather, the
Sixth Circuit concluded, the corporate nominees should be treated as
agents because they "acted like agents" (id. at 11a).  The court of
appeals acknowledged the general rule that a corporation used for
legitimate business purposes is a discrete entity that is taxed
separately from its shareholders.  Noting that respondents had used
their corporations for the sole purpose of complying with state usury
laws, however, the court said that this was not "a situation where a
taxpayer has embraced the advantages of doing business as a
corporation and so, in fairness, must be held to the burdens as well
as the benefits of the corporate form" (id. at 8a).

                   REASONS FOR GRANTING THE PETITION

   The decision of the court of appeals directly conflicts with the
decisions of the Fourth Circuit in Ourisman v. Commissioner, supra,
and Frink v. Commissioner, 798 F.2d 106 (1986), petition for cert.
pending, No. 86-1151 (filed Jan 13, 1987).  The decision below also
conflicts with the decisions of the Fifth Circuit in Roccaforte v.
Commissioner, supra, and George v. Commissioner, 803 F.2d 144 (1986),
petition for cert. pending, No. 86-1152 (filed Jan 13, 1987).  For the
reasons set forth in our consolidated response to the petitions in
Frink and George, /3/ we believe that those decisions are correct and
that the court below seriously misconstrued the import of this Court's
holdings in Moline Properties, Inc. v. Commissioner, 319 U.S. 436
(1943), and National Carbide.  As further explained in that brief, we
believe that the issue presented by this case has sufficient
administrative importance to warrant this Court's resolution of the
conflict in the circuits.  In the event the Court grants certiorari in
Frink and George, it would be appropriate to hold this case pending
the disposition of those cases.

                              CONCLUSION

   The petition should be disposed of as appropriate in light of the
disposition of the petitions in Frink v. Commissioner, No. 86-1151,
and George v. Commissioner, No. 86-1152.

   Respectfully submitted

   CHARLES FRIED

      Solicitor General

   APRIL 1987

   /1/ The apartment complexes are listed at App., infra, 2a-3a n.1.

   /2/ For convenience, we use the term "partnerships" to include
noncorporate sole proprietorships.  A separate venture was formed to
develop each apartment complex.

   /3/ We are furnishing respondents' counsel with a copy of our
consolidated brief in Nos. 86-1151 and 86-1152.

   APPENDIX